How do I calculate annualized return?

How do I calculate annualized return?

To calculate annualized return, you can use the formula:

[ AR = \left( \frac{EV}{BV} \right)^{\frac{1}{n}} - 1 ]

where EV is the ending value, BV is the beginning value, and n is the number of years.

Can you give me an example?

Sure! If you invested $1,000 (BV) and it grew to $1,500 (EV) over 3 years (n), the calculation would be:

[ AR = \left( \frac{1500}{1000} \right)^{\frac{1}{3}} - 1 \approx 0.1447 \text{ or } 14.47% ]

What if I want to calculate it for different time periods?

You can use the same formula! Just adjust the 'n' value to reflect the number of years for each period you're interested in.

Is there a way to calculate it using Excel?

Yes! You can use the XIRR function in Excel, which calculates the annualized return based on cash flows and dates.